Why property crowdfunding is considered a sham

IT is baffling how the pursuit of gains has rendered a floor, a couple of walls and a roof an investment instrument, with no consideration for societal norms for the need to own a house as a fundamental human right to shelter.

Real estate has, over the decades, been a much-loved investment avenue, especially among Asians. The sort of property investment we are familiar with mostly involves rental and tenancy. The real estate investment trust is yet another property-linked investment, where investors receive dividends.

The unveiling of a property crowdfunding (PCF) framework by the Securities Commission (SC) yesterday, however, takes property investment to a whole new level.

Housing is now seen from a purely moneyed viewpoint – will house prices rise or fall? The investor would want prices to escalate, as he profits only if it does.

The strange part is that the SC equates PCF to “an alternative” form of funding home ownership. In what way is it home ownership when the buyer may not be able to buy it five years down the road because the price has escalated? He would be homeless. Will he then go on to the next PCF platform and will he still be considered “a first-time buyer”?

Stranger still is the fact that this legal framework experiments with this “new alternative” by placing the young first-time home buyers squarely as a bait against money-eyed investors chasing after yields and profits. Both have widely different agendas.

Under PCF, you need a platform operator, investors, developers and house buyers. It will not work without someone taking the bait.

Now, the SC has plainly said that it is not going into the property sector, that it is merely providing a legal framework.

As housing is a big-ticket item, there will come a time when the house buyer would need a loan to pay the 80% or 90% he does not own. Or, he can opt out and be homeless. One might say that he could rent, but that is not the point. The point is, how will PCF help a young person purchase his own house?

The banking sector may not be involved in the initial years as the investment runs its course. But just as there is an exit point for investors to make a killing after, say, five years, the house buyer has to decide to exit, or remain.

By all measures, crowdfunding has its merits because it allows like-minded investors to put their money in a project or a business. But is this pooling together of resources linked to home ownership? Instead of a house, let’s take the case of a vintage car (we will forget about that Mercedes because it is a depreciating asset).

Millennials cannot afford a vintage car, but under this crowdfunding alternative, they can put down 10% and “own” it for five years.

The investors will bet that the price of the vintage car will rise. Granted, he can’t live in a car, but this is to drive home the point that crowdfunding as “an alternative” to bypass the bank has its merits when it involves a business, project or even some cause. However, it is unacceptable to promote it as “an alternative” to fund a young person’s hopes of owning a house.

This brings us to the next question, why is the government equating home ownership to an investment proposition when it is so obvious that the young house buyer and the investor have different objectives? Has it anything to do with the fact that the country has more than 32,000 units of unsold residential units with no takers because banks have put in place stringent lending guidelines?

So, the powers-that-be conveniently dig a new path to bypass the banks in providing “an alternative” in a bid to bring these unsold units down, while at the same time quelling the cries of first-time home buyers who find it impossible to buy a house.

If this is the case, then we have politicised housing, without thinking of societal and economic consequences, and without actually bringing house prices down.

Affordability issues are not being resolved here, only new ways of financing are being created.